DEAR TAXPAYERS: You Might Be On The Hook For Way More Of The $40 Billion Mortgage Settlement Than You Thought

When the national mortgage settlement was initially announced,
one of the criticisms that was thrown its way was that it only
contained $5 billion in fines on banks for improper
behavior.

The remaining portion, up to $35 billion, would come in the form
of principal reductions and refinancings. And why was that a
problem? Because, some said, the American taxpayer was
on the hook for that $35 billion.

But when you boiled down those claims, they were really more
about the fact that a lot of investors own mortgage-backed
securities and a lot of people are investors, so we all lose a
bit.

Now we there's new evidence that the taxpayers are going to pay
for over 80% of the settlement from the Financial
Times:

"...a clause in the provisional agreement – which has not been
made public – allows the banks to count future loan modifications
made under a 2009 foreclosure-prevention initiative towards their
restructuring obligations for the new settlement, according to
people familiar with the matter.

The existing $30bn initiative, the Home Affordable Modification
Programme (Hamp), provides taxpayer funds as an incentive to
banks, third party investors and troubled borrowers to arrange
loan modifications."

That clause has left former-TARP Inspector General Neil Barofsky
fuming: “It turns the notion that this is about justice and
accountability on its head."

The rift over this issue was intense, the FT reports, and caused
a rift between state and federal officials. In the end, the
states' attorneys general lost the argument and banks will be
allowed to receive Hamp credits and rewards for loans that are
modified under the settlement.